You seem to be making up your own definitions. I dump 1000 ES contracts at market for the purpose of hedging my portfolio. I don't use charts. I don't use patterns. That action will cause a random (unpredictable) spike down as there is nothing to warn about my actions, but price will likely continue higher afterwards if the trend/major pattern was moving higher originally. In other words. Noise. Do you still disagree? As for institutions, they get it plenty wrong, too.
But seriously? Why would a sane person like you literally dump 1000 ES contracts on a whim, without any regard to where the price is trading? I don't think you're such a fool (or maybe you are...I need to think about it )
Hello volpri, I agree with this. There is no noise in the futures market. Whatever a trader thinks is noise, is certainly meaningful data point for another trader to make money from. Further more, if a trader think certain price pattern on the chart is noise, ok well try to make money from noise. As traders with look for situations or price pattern or whatever, to make decent money or lose decent money. The win and loss must make us happy.
Yes still disagree. And of course a chart will draw out what your action caused price to do. The spike down happened for a reason. You were hedging and dumped 1000 contracts (which really isn’t that much in the larger scheme of things). And that spike down was tradable. No noise just tradable price movement. It could create a pb for trend traders to average down or scale in …to be nice and PC…or it could initiate a bigger move down as some long institutions dump their contracts driving it even further down. Either way that one slices the cake it is tradable PA so no noise. Agreed institutions get it wrong a lot. But one side wins at least momentarily. Then the other side wins. The key is to determine which side is winning and win with them.
it does not matter how they are formed. it only matters that you recognize it when it is formed. then it is obvious what strategy you should use. strategies are dependent on the market conditions-trending or ranging. What do you do if it is in between? the easiest strategy then is sit on hands. i am looking for easy money...not a 'challenge'. Brooks says he trades everything. well best of luck to him.it is not for me. i am back to the first 'strategy' when i started trading. do not lose that is priority no 1. priority no 2 is when you lose lose small. 3 is do not trade to recover losses.
Yes, and how I do it is turn pink noise (i.e. price) into white noise with a 5-bar highpass filter: 0.0909*x[0]+0.4545*x[1]-0.4545*x[3]-0.0909*x[4] Now, the group delay (i.e.lag) for the filter is 2 days, so I run the Voss predictor algorithm to reduce the lag. Next, I normalize the data with automatic gain control (AGC) so that it swings between 1 and -1. Buy and sell rules are based on a threshold value of your choosing. Another techinque to try, once AGC has been run, is to Fisher Transform the data and buy and sell on extreme standard deviation moves.
I have a few books by Ehlers and, frankly, they give me head cramps. There are so much math/science jargons. Anyway, you might find the following diagram helpful, which is from his book, Cycle Analytics for Traders (2013).
The Importance of Price Noise Market noise is an important but elusive component of price movement. It is the up-and-down, erratic price movement that goes nowhere and often causes you to be stopped out of a trade only to see prices reverse back in your direction. Traders have no trouble recognizing noise. Most price shocks are an extreme case of noise, when the large move is followed by an equally sharp reversal the next day. A price shock is not noise if prices continue in the direction of the shock. That is most likely a structural change. The elusive part is: How do you tell the difference between a structural change and a price shock? When does a price move indicate a trend change, and when is it just noise? How do you take advantage of price noise? NOISE EXPLAINED The way we think about price noise is a day with very high volatility but a close nearly unchanged, or a day when prices closed sharply lower, then reversed nearly the entire move the next day. We also associate noise with the way prices react to our trading method. We get stopped out of a long position when prices break a key level, but that turns out to be the low of the move, and we're out at the worst price of the day. In general, noise is a disorderly move. It doesn't need to be volatile, just erratic and unpredictable. Econometricians say that when you remove the trend, the seasonal pattern, and the cycle, the three main components of price movement, what you have left is noise. That's interesting but not very useful. We don't want to remove those three elements because the combination of everything causes price moves that can generate profits. Instead, we'll think of noise in the same way we approach the walk of a drunken sailor (no offense to sailors—it could be anyone). If a sailor were to walk from point A to point B in a straight line, we can say that his route has no noise. If he meanders slightly off that straight path, we can see that as a small amount of noise; however, if he staggers first to the right, then sharply to the left, then backward and forward by different amounts, but ultimately heading slightly toward his goal, we would say there was a large amount of noise. FIGURE 2.1 Noise is calculated as the net move (from A to B) divided by the sum of the individual moves (1 through 7). All values are taken as positive numbers. Once you understand the picture, seen in Figure 2.1, the concept should become clear: the straighter the path, the less noise; the more erratic the path, the more noise. This pattern can be expressed as a value we call the efficiency ratio. First, we measure the net distance gained from point A to point B, always taken as a positive number. Then we measure the actual path taken by the sailor in his journey from point A to point B. Those values are also always positive, regardless of whether he is stumbling forward or staggering backward. The efficiency of his walk is given by the ratio Referring now to the efficiency ratio (ER), if the sailor walked in a straight line, the ratio would be 1 because the numerator and denominator would be the same. As the sailor wobbles more, the denominator gets larger. If he wandered back and forth for a really, really long time, the denominator would get very big, and the ratio would move toward zero. Therefore, a walk with no noise will have the ratio of 1.0, and a completely directionless walk would be zero. This can be shown mathematically as where t represents today, P is the price, and n is the total number of days used in the calculation. As with many financial calculations, this is done over a fixed, relatively short period. By calculating the ratio each day based on rolling time periods, we get a history of the price noise. When we average those individual ratios over a long period of time, we get a profile of the amount of noise in a specific stock, index, or commodities market. Note that the value ERt can be zero (or near zero) if the denominator is extremely large or if the numerator is zero, which can happen if the starting and ending prices are the same. The ratio has no sign, so that we don't know if the prices have gone up or down over the calculation period. Because the calculation is greatly dependent on the starting and ending values, some mathematicians consider it unstable. However, averaging the values over some period of price history minimizes that problem.